[ Silence ] >> So there are multiple ways in which we can organize cost information. The first one is in accordance to the cost object. For simplicity we'll just think about a product, a good, that we're manufacturing as the cost object of interest. And in this framework we'll organize the cost by relation to that cost object. There are two main categories. The first have to do with direct costs. And examples of that for a manufactured good include materials and labor that are directly traceable to that good that we have produced. A second category is generically referred to as indirect costs. Indirect costs are necessary costs, but they're difficult or infeasible to trace to that particular cost object. They're too general. So indirect costs, which is often referred to as overhead, is a catch all category for all these different types of costs that aren't directly traceable to the good or the service of interest. Now, in exploring a little bit more about the indirect costs, we can think about an example. Something as simple as a mug that is being manufactured. Just looking at this very simple product, you can see materials embedded in it. You can think about the aluminum casing, you can think about the plastic insert, the plastic handle, and the plastic top. As a matter of fact, there are screws inside of the mug that connect the handle to the mug. So in thinking about this good, you can say that the direct materials are all of those things that we see in any one particular mug. And firms often understand the costs of those direct materials so they understand how much each of those mugs costs in terms of the materials that are specific to it. The same thing for labor. The employees that are responsible for working machines to form and shape those materials and put them together, you can see that labor inside each mug. So the cost that we pay or we incur to pay those employees are directly traceable to each mug. It's other costs such as overhead, examples of which would be utilities costs in the factory, the electricity it takes to run the machines, the supervisors' salaries and wages that we pay, all of the supplies that are necessary to support but are not directly traceable to each mug, would be construed, considered to be overhead. Now, overhead makes things quite difficult, especially when we talk about multiple product scenarios. If multiple products or multiple types of mugs are being manufactured inside the same factory, then there's an allocation of overhead to the different types of mugs, and how we allocate those costs influence the perceived costs of the product. That ultimately influences the decisions on which cost information serve. If this allocation is arbitrary or inaccurate, it can lead to poor decisions. Given that the cost information is wrong, so will pricing and other profitability oriented decisions. So as you can see, how we organize, classify, and allocate overhead costs to different products is crucial in terms of creating accurate cost information.